In our view, the taxes in these bills have been developed in
haste in order to collect revenue, rather than being supported by coherent
policy. Rather, past policy has encouraged consumers to take up LPG through
conversion subsidies. Further, the bills will negative side effects such as
adding to motorists’ cost of living and increasing costs for the taxi industry
and other forms of public transport such as busses. Taxi and bus customers will
face higher charges as operators seek to recover increased costs flowing
directly from these excise increases.

Additionally, we note that at a time when the Government is
seeking to introduce a price on carbon which will increase the cost of living,
these bills remove the incentive to choose fuels with a smaller environmental
footprint such as LPG and alternative fuels.

We support the Energy Grants (Cleaner Fuels) Scheme
Amendment Bill 2011 due to the potential for ethanol, biodiesel and renewable
diesel to lead to improved environmental outcomes, greater regional development
and fuel security.

Motoring costs for families

Fuel prices are important to working families because, as
the NRMA advised the committee, ‘because the motor vehicle occupies such a
significant cost to the average family weekly budget’.[1]
The NRMA confirmed that it receives a great deal of feedback from its
membership about fuel prices:

We get asked a lot of questions like: 'Why has it gone up X
cents?' The dollar has gone up and so has the price of crude. When crude comes
down, they say, 'Well, we should see a four or five cent reduction at the
bowser.' They say, 'Why aren't we seeing it?'[2]

On a daily basis we would get SMSs, emails and letters about
the price of fuel. When it came down to the $1.20s and we saw less than $1.20
there for a little period it was relatively quiet. The moment it starts to
climb back up again and when it reached the $1.40-odd that it did recently,
there is an exponential increase in the communication with us as to the cost of
fuel. [3]

The NRMA also stated in evidence that lower income earners
are more sensitive to fuel costs because they live in outer suburbs and tend to
drive longer.[4]

The liquid petroleum gas industry, represented by LPG
Australia, confirmed that motoring costs are an important issue for families
who have installed LPG units on their vehicles:

But for LPG ... it is an absolutely fundamental around the kitchen
table with mum and dad and the family budget, asking: 'Can we afford to convert
the vehicle? How long's it going to take us to get our money back? What is it
going to save us each week driving from Campbelltown to the city?' It is that
type of analysis ... that the folks out there will do. They will make that
decision, but again it is having some confidence that having made that
decision—the first words that come out at the town hall meetings that we run
are: 'We're being duped. The government has encouraged us over the past four to
five years to convert our vehicle across to LPG and now they're taxing the
thing, they're capping the program and we don't know what they're going to do
to alternate fuels and carbon tax. We've been duped.'[5]

We cannot support a tax that places a large burden on
families, especially when they have been encouraged to covert to LPG. We
believe that better underlying policy will produce a more equitable result for
motorists, especially those that have recently converted to LPG.

The taxi industry and its customers

The taxi industry is heavily reliant on LPG. The Australian
Taxi Industry Association stated that 90 per cent of cabs in Australia are
converted to this fuel. The remaining 10 per cent that does not use LPG is in
the Northern Territory and Northern Queensland, where it is not cheap. In these
markets, hybrid vehicles are becoming popular and now comprise up to
40 per cent of the taxi fleet in some areas.[6]

The Association advised the committee that, if passed, the
bills will increase taxi fares by three to five per cent. Therefore, for the
average taxi fare of $21, fares would increase by $1. Taxi fares are set by
state and territory governments and they would pass increased fuel costs
through to fares as a matter of routine.[7] This would then impose a
significant burden on an important part of its clientele, namely people for
whom taxis are the only form of available transport:

For the average business traveller, taxi fares are very cheap
in Australia. They must be cheap if they are affordable by pensioners and
people with a disability, who are paying at the same rate as people who are
running multi-million-dollar, transnational businesses and have just jumped off
a plane, from first class, and hopped into a cab. They must be incredibly cheap
because the taxi fare is exactly the same for Mrs Smith, who is on a disability
pension, to get from her Housing Commission home down to the shops and back.

From our point of view, we are not worried about the impact
on taxi fares for our business customers. We are concerned that this is going
to add to the cost of taxi fares for people who cannot easily afford them. A
good proportion of our taxi customers budget down to the last 10c. For many of
them, catching a cab is not a discretionary activity, it is a non-discretionary
activity. They need to get down to the shops because if they do not then they
do not eat or their family does not eat. If they do not get down to the
shopping centre they cannot get to the doctors and seek early medical
treatment, as opposed to late medical treatment. This is what we are talking
about here, and our issue is that it seems completely unnecessary.[8]

The Association stressed that the industry itself would not
be greatly affected by the increases because the price elasticity of demand for
taxi travel is close to zero for fare increases up to five per cent.[9]

We cannot support a tax that places an additional burden on
the taxi industry, especially when it would be passed on to a section of the
community that is least able to afford it.

A search for revenue unsupported by policy

A common statement to the committee during the inquiry was
that there has been no underlying policy to support these tax increases.
Organisations who provided this feedback included Smorgon Fuels, the Energy
Networks Association, LPG Australia, and the NRMA.[10]
Developing a coherent policy for a tax is important because it provides a
rationale for designing the tax that everyone has the chance to relate to.

LPG Australia described the development of the tax in
detail:

The only time this thing raised its head was in May last year
in the Henry tax review, when we picked up that there was an inkling that there
would be something with respect to excise on alternative fuels. There it was on
page 400, subparagraph (b) and subparagraph (d). There it was standing. Then,
of course, in the ongoing dialogue all the way up to October, before Treasury
actually released their draft view of the excise, there was no consultation
with industry whatsoever—nothing. On the release of that document from
Treasury, industry had nine working days to provide a submission. It was an
incredibly difficult exercise. Treasury made no secret of the fact that they
had one single remit: get the money.

Of course, the first observation we made was that there is no
policy. How do we debate in a policy vacuum? What do we go forward with? So we
were forced, in a sense, to work with Treasury to try and sort out what was
then, as I explained, an unworkable tax compliance model to get something that
would relieve the pressure on the traditional users of LPG so that they were
not filling out a BAS form every month but, in the next breath, then to try to
work with Minister Ferguson and Minister Carr and say, 'For heaven's sake, we need
policy in this space.' Neither camp, of course, would connect those dots.[11]

We cannot support a tax that has been developed under such
circumstances. Although an announcement was made about fuel taxation in 2003,
the limited action taken on it meant that its status was largely historical. In
particular, the government of the day shortly thereafter encouraged the take up
of environmentally friendlier fuels with a smaller carbon footprint by
introducing a subsidy for LPG conversions. LPG Australia advised the committee:

When you say that this has crept up on us, certainly back in
2003 we had these arguments. But Gill noticed that not long after all that
debate occurred, the Howard government then moved forward to put in place the
LPG vehicle scheme to encourage the take-up of LPG. It understood that the
original concept of taxing LPG was probably the wrong way to go. The whole
situation for that—and when you look at the idea of policy eight years ago and
to transfer that across into today in 2011—you have to ask yourself are we
still have some world, and the answer is no, we are not. It is a totally
different world.[12]

The tax in the three bills we oppose need to be dealt with
as a component of a comprehensive energy tax framework. All parties would be
better off if further action in this area was delayed until appropriate policy
was developed.

Conclusion

We oppose the three bills that impose tax on LPG, compressed
natural gas and liquid natural gas. LPG is already contributing to Australia’s
fuel security with six per cent of the transport fuels market[13]
and the remaining two fuels have considerable potential to do so in future.
Further, the proposed taxes will increase the cost of living and have an
adverse, unnecessary effect on the taxi industry and its customers. Finally,
there is no adequate policy to support these taxes and consumers have in the
past been encouraged to take up LPG through conversion subsidies.

However, we acknowledge the arguments for the energy grants
bill because the fuels involved have the potential to lead to improved
environmental outcomes, greater regional development and fuel security. This
approach was supported by a large number of witnesses in evidence.[14]

Recommendation One

There be development of a
comprehensive energy tax framework.

Recommendation Two

The House of Representatives
pass the Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011 in as a
matter of urgency and oppose the remaining bills to the extent that they do not
support the passage of the energy grants bill.